Festive Savings Are Here. Get 10% OFF on All CCI Pro Plans. Subscribe Now!

Interest free loan taxable or not

1050 views

Save Share

Atharv Sankliya

991 Points Posted on 24 May 2023

if a firm borrowed interest free loan from a supplier ( due to good relationship) then does it(interest part) is taxable as perquisite/ benefit arising In the business u/s 28(iv)

Replies (5)

Quick Summary

This discussion explores whether an interest-free loan received by a business from a supplier is taxable as a perquisite. While interest paid on a business loan is deductible, an interest-free loan isn't typically considered taxable income for the borrower. This contrasts with salaried individuals who might face tax implications on interest-free loans from employers.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

121534 Points Posted on 24 May 2023

When a firm borrows loan and if interest is required to be paid, then the interest can be claimed as expenditure under PGBP.

If interest is not required to be paid, it is not allowed as expense, as such net effect is same; as such it is not included as income to borrower.

Atharv Sankliya

991 Points Posted on 24 May 2023

Sir why it is not taxable under pgbp in the hand of borrower on the other hand same is taxable if the borrower is salaried person and borrows money from his employer?

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

121534 Points Posted on 24 May 2023

A businessman borrows loan for business purpose i.e. to earn profit, and thereby he is allowed to deduct interest paid as revenue expenditure.

While any other entity (non-Business) borrows loan for investment or personal expenditures, and there is no specific scope for its deduction, (except home loan). But in that case also, it's not taxable in the hands of borrower.

In short, Interest income received is taxable, but not the interest paid over loan.